Case 6:21-cv-00331-ADA Document 143 Filed 02/09/23 Page 1 of 38
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE WESTERN DISTRICT OF TEXAS
`WACO DIVISION
`
`IGT and IGT CANADA SOLUTIONS ULC,
`
`Plaintiffs
`
`v.
`
`Zynga Inc.,
`
`Defendant.
`
`§
`§
`§
`§
`§
`§
`§
`§
`§
`§
`
`Case No. 6:21-cv-00331-ADA
`
`JURY TRIAL DEMANDED
`
`MOTION TO EXCLUDE DAMAGES TESTIMONY OF DR. KEITH UGONE
`
`PUBLIC VERSION
`
`

`

`Case 6:21-cv-00331-ADA Document 143 Filed 02/09/23 Page 2 of 38
`
`TABLE OF CONTENTS
`
`Page
`
`TABLE OF AUTHORITIES ......................................................................................................... ii
`
`TABLE OF EXHIBITS ................................................................................................................ iv
`
`I.
`
`II.
`
`III.
`
`IV.
`
`INTRODUCTION ............................................................................................................. 1
`
`BACKGROUND ............................................................................................................... 2
`
`LEGAL STANDARD ........................................................................................................ 8
`
`THE COURT SHOULD EXCLUDE DR. UGONE’S DAMAGES TESTIMONY ......... 9
`
`A.
`
`Dr. Ugone’s Opinion Is Unreliable Because His Unapportioned Damages
`Estimate Does Not Reflect The Value Of The Patents-In-Suit. ............................. 9
`
`1.
`
`2.
`
`Dr. Ugone did not apportion the royalty base. ......................................... 11
`
`Dr. Ugone failed to apportion the royalty rate. ........................................ 13
`
`i.
`
`ii.
`
`The Mylex-EMC License does not reflect built-in
`apportionment for the Patents-in-Suit. ......................................... 16
`
`Mr. Calogero’s testimony does not reflect built-in
`apportionment for the Patents-in-Suit. ......................................... 20
`
`B.
`
`Dr. Ugone’s Damages Opinion Is Inadmissible Because His Royalty Rate
`Is Untethered From The Facts Of This Case. ...................................................... 22
`
`1.
`
`2.
`
`Dr. Ugone failed to account for the economic differences between
`the hypothetical negotiation and the licenses and term sheets that
`he relied on. .............................................................................................. 22
`
`Dr. Ugone’s conclusory Georgia-Pacific analysis is not adequately
`tied to the facts of the case. ...................................................................... 28
`
`V.
`
`CONCLUSION ................................................................................................................ 30
`
`-i-
`
`

`

`Case 6:21-cv-00331-ADA Document 143 Filed 02/09/23 Page 3 of 38
`
`TABLE OF AUTHORITIES
`
`
`
`Page(s)
`
`Cases
`
`ADASA Inc. v. Avery Dennison Corp.,
`55 F.4th 900 (Fed. Cir. 2022) ..............................................................................................9, 28
`
`Apple Inc. v. Wi-LAN Inc.,
`25 F.4th 960 (Fed. Cir. 2022) ............................................................................................18, 22
`
`AstraZeneca AB v. Apotex Corp.,
`782 F.3d 1324 (Fed. Cir. 2015)................................................................................................13
`
`Bio-Rad Lab’ys, Inc. v. 10X Genomics Inc.,
`967 F.3d 1353 (Fed. Cir. 2020)..........................................................................................15, 18
`
`Commonwealth Sci. & Indus. Research Organisation v. Cisco Sys., Inc.,
`809 F.3d 1295 (Fed. Cir. 2015)................................................................................8, 13, 14, 15
`
`Daubert v. Merrell Dow Pharmaceuticals, Inc.,
`509 U.S. 579 (1993) .....................................................................................................1, 8, 9, 30
`
`Elbit Sys. Land & C4I Ltd. v. Hughes Network Sys., LLC,
`927 F.3d 1292 (Fed. Cir. 2019)................................................................................................15
`
`Ericsson, Inc. v. D-Link Sys., Inc.,
`773 F.3d 1201 (Fed. Cir. 2014)................................................................................................24
`
`Exmark Mfg., Co. v. Briggs & Stratton Power Prods. Grp., LLC,
`879 F.3d 1332 (Fed. Cir. 2018)........................................................................................ passim
`
`Finjan, Inc. v. Blue Coat Systems, Inc.,
`879 F.3d 1299 (Fed. Cir. 2018)....................................................................................12, 20, 21
`
`Finjan, Inc. v. Secure Computing Corp.,
`626 F.3d 1197 (Fed. Cir. 2010)................................................................................................22
`
`Hanson v. Alpine Valley Ski Area, Inc.,
`718 F.2d 1075 (Fed. Cir. 1983)................................................................................................26
`
`Kumho Tire Co. v. Carmichael,
`526 U.S. 137 (1999) ...................................................................................................................8
`
`LaserDynamics, Inc. v. Quanta Comput., Inc.,
`694 F.3d 51 (Fed. Cir. 2012)............................................................................................ passim
`
`-ii-
`
`

`

`Case 6:21-cv-00331-ADA Document 143 Filed 02/09/23 Page 4 of 38
`
`MLC Intell. Prop., LLC v. Micron Tech., Inc.,
`10 F.4th 1358 (Fed. Cir. 2021) ................................................................................9, 15, 16, 26
`
`Odetics, Inc. v. Storage Tech. Corp.,
`185 F.3d 1259 (Fed. Cir. 1999)................................................................................................25
`
`Omega Patents, LLC v. CalAmp Corp.,
`13 F.4th 1361 (Fed. Cir. 2021) ........................................................................................ passim
`
`Pavo Sols. LLC v. Kingston Tech. Co.,
`35 F.4th 1367 (Fed. Cir. 2022) ................................................................................................15
`
`Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc.,
`904 F.3d 965 (Fed. Cir. 2018)..................................................................................................10
`
`Roche Diagnostics Corp. v. Meso Scale Diagnostics, LLC,
`30 F.4th 1109 (Fed. Cir. 2022) ................................................................................................17
`
`Uniloc USA, Inc. v. Microsoft Corp.,
`632 F.3d 1292 (Fed. Cir. 2011)..................................................................................................9
`
`Vectura Ltd. v. GlaxoSmithKline LLC,
`981 F.3d 1030 (Fed. Cir. 2020)....................................................................................15, 17, 18
`
`VirnetX, Inc. v. Cisco Sys.,
`767 F.3d 1308 (Fed. Cir. 2014)............................................................................................8, 13
`
`Whitserve, LLC v. Comput. Packages, Inc.,
`694 F.3d 10 (Fed. Cir. 2012)........................................................................................13, 27, 30
`
`-iii-
`
`

`

`Case 6:21-cv-00331-ADA Document 143 Filed 02/09/23 Page 5 of 38
`
`Exhibit No.
`Exhibit 1
`Exhibit 2
`Exhibit 3
`
`Exhibit 4
`
`Exhibit 5
`
`Exhibit 6
`
`Exhibit 7
`Exhibit 8
`Exhibit 9
`Exhibit 10
`Exhibit 11
`Exhibit 12
`
`Exhibit 13
`
`Exhibit 14
`Exhibit 15
`
`Exhibit 16
`
`TABLE OF EXHIBITS
`
`Description
`Expert Report of Keith R. Ugone Ph.D. dated Nov. 10, 2022
`Relevant excerpts of Jan. 6, 2023 deposition transcript of Keith R. Ugone
`
` (IGT_0011468)
`
` (IGT_0020333-34)
`
` (IGT_0020335-61)
`Technology Development and License Agreement between InterTrust
`Technologies and Universal Music Group (IGT_0018968-19053)
`License Agreement between EMC and Mylex (IGT_0019054-72)
`U.S. Patent No. 9,159,189 (IGT_0000022)
`U.S. Patent No. 7,168,089 (IGT_0000045)
`U.S. Patent No. 8,795,064 (IGT_0000123)
`U.S. Patent No. 8,266,212 (IGT_0000184)
`Exhibit 13 to the Expert Report of Keith R. Ugone Ph.D. dated Nov. 10,
`2022
`Outfox Buy Page & In App Purchase Architecture Planning Document
`(ZYNGA00002373-89)
`Relevant excerpts of Aug. 5, 2022 deposition transcript of Martin Sarabura
`
`(IGT_0007623-68)
`Appendix A to Expert Report of Keith R. Ugone Ph.D. dated Nov. 10, 2022
`
`-iv-
`
`

`

`Case 6:21-cv-00331-ADA Document 143 Filed 02/09/23 Page 6 of 38
`
`I.
`
`INTRODUCTION
`
`IGT’s damages expert, Dr. Keith Ugone, offers a reasonable royalty damages analysis that
`
`fails a basic requirement: apportionment. Dr. Ugone admits he did not apportion the royalty base.
`
`Nor did he apportion the royalty rate. The word “apportion” and its variants appear but once in
`
`his report, in the background section. Instead of conducting any analysis about the technological
`
`value of the asserted patents to Zynga’s multi-featured products, Dr. Ugone testified in deposition
`
`that apportionment is “baked in.” But the circumstances in which the Federal Circuit has accepted
`
`“built in” apportionment are narrow, they are not present here, and Dr. Ugone’s report did not
`
`mention or provide any analysis of built-in apportionment. Most fundamentally, built-in
`
`apportionment does not apply here because the licenses and pre-license communications that Dr.
`
`Ugone relied upon are for portfolios covering dozens of patents, entire software products, and/or
`
`entire areas of technology, not to small sets of features analogous to those accused in this case.
`
`Because Dr. Ugone failed to apportion damages, his opinion must be excluded.
`
`Dr. Ugone’s opinion should also be excluded because it is not adequately tied to the facts
`
`of this case. Instead of offering comparable licenses and accounting for how those licenses differ
`
`from the hypothetical negotiation, Dr. Ugone simply (i) lists a set of licenses and licensing
`
`communications, (ii) makes a conclusory remark about each Georgia-Pacific factor, and then
`
`(iii) selects his preferred royalty rates from among the proffered examples. There was no
`
`application or analysis for a jury to evaluate—just his ipse dixit about which of his proffered
`
`examples provides the appropriate rate. As a result, Dr. Ugone’s opinion would not “aid the jury
`
`in resolving [the] dispute,” Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 591
`
`(1993) (emphasis added), and the Court should exclude it for that reason.
`
`-1-
`
`

`

`Case 6:21-cv-00331-ADA Document 143 Filed 02/09/23 Page 7 of 38
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`II.
`
`BACKGROUND
`
`IGT and IGT Canada Solutions ULC (collectively, “IGT”) allege that various Zynga
`
`mobile games infringe one or more of U.S. Patent Nos. 9,159,189 (“’189 patent”); 7,168,089
`
`(“’089 patent”); 8,795,064 (“’064 patent”); and 8,266,212 (“’212 patent”); (collectively, the
`
`“Patents-in-Suit”). The four Patents-in-Suit are part of a
`
`
`
`
`
`
`
`. See Ex. 1 (Ugone Rpt.) ¶ 93.
`
`IGT’s damages expert, Dr. Keith Ugone opines that Zynga owes IGT between $43,530,407
`
`and $76,570,575 for infringement of the four Patents-in-Suit. See id. at ¶ 264(h). He reaches this
`
`result by taking Zynga’s entire gross revenues (or, for the ’212 patent, total revenues from in-apps
`
`purchases) as the royalty base and applying either (i) a tiered running royalty rate of 1.0% / 2.0%
`
`depending on the number of patents used or (ii) a 3.0% running royalty rate regardless of the
`
`number of patents used. See id. at ¶ 264(g).
`
`Dr. Ugone’s damages analysis begins by identifying four so-called “indicators of value for
`
`consideration and discussion” that he believes the parties would have had before them in the
`
`hypothetical negotiation:
`
`1)
`
`IGT’s “opening negotiating position” of a 4.67% - 6.0% running royalty rate, taken
`from two unaccepted licensing term sheets (one of which that was never even
`agreed to) that IGT sent to other companies (not Zynga) years after the date of the
`hypothetical negotiation.
`
`
`id. at ¶ 53(a).
`
`See id. at ¶ 225; see also
`
`2)
`
`Licensing rates “ranging from 0.6% to 2.0% of gross sales,” taken from two third-
`party licenses: (a) a 1998 Mylex-EMC license covering 60+ patents and (b) a 1999
`Universal-InterTrust license that granted a license to software. See id. at ¶ 53(b).
`
`-2-
`
`

`

`Case 6:21-cv-00331-ADA Document 143 Filed 02/09/23 Page 8 of 38
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`3) An understanding that the greater the number of Patents-in-Suit practiced by the
`accused Zynga games, the greater the upward pressure on the to-be-negotiated
`royalty payment will be. See id. at ¶ 53(c).
`
`4)
`
`The expectation that the mobile and social gaming market would continue to
`expand. See id. at ¶ 53(d).
`
`Based on these “indicators of value,” Dr. Ugone created a “royalty rate negotiation matrix.”
`
`See Ex. 1 (Ugone Rpt.) ¶¶ 260-261; Ex. 2 (Ugone Dep. Tr.) at 300:6-23; 303:11-304:6.
`
`Dr. Ugone’s “Royalty Rate Negotiation Matrix”
`
`Ex. 1 (Ugone Rpt.) ¶ 260 (Table 26) (color and “Option …” annotations added).
`
`The matrix lists seven potential royalty options that Dr. Ugone concluded the parties would
`
`have considered at the hypothetical negotiation. Options 6 and 7 come from the term sheets that
`
`IGT
`
`
`
`,
`
`which Dr. Ugone submits represent IGT’s opening negotiation position (value indicator #1). See
`
`Ex. 1 (Ugone Rpt.) ¶ 53; see also
`
`. These term sheets
`
`
`
`See,
`
`e.g., Ex. 1 (Ugone Rpt.) ¶¶ 233, 236; Ex. 2 (Ugone Dep. Tr.) at 107:14-19. Both offers were made
`
`-3-
`
`

`

`Case 6:21-cv-00331-ADA Document 143 Filed 02/09/23 Page 9 of 38
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`after IGT initiated this lawsuit against Zynga (and years after the hypothetical negotiation). See,
`
`e.g., Ex. 2 (Ugone Dep. Tr.) at 92:25-93:3; Ex. 1 (Ugone Rpt.) ¶ 235 n.419.
`
`Tellingly, neither
`
`
`
` Ex. 1 (Ugone Rpt.) ¶ 230.
`
` Those actual licenses are not in Dr. Ugone’s matrix.
`
`See Ex. 5
`
`Another option (Option 3) comes directly (without adjustments) from the Universal-
`
`InterTrust license (value indicator #2a). Ex. 6 (Universal-InterTrust license). Neither Universal
`
`nor InterTrust are gaming companies—Universal is a music company, and InterTrust was a digital
`
`rights management software company acquired by Sony in 2003. See Ex. 1 (Ugone Rpt.) ¶ 250.
`
`The Universal-InterTrust license was a license to use and/or modify InterTrust’s digital rights
`
`management software. See id. at ¶ 252. It applied royalty rates of 0.6%-2.0% of the value of every
`
`transaction received by Universal through the use of InterTrust’s technology (or a modified version
`
`thereof), though Dr. Ugone considered only the 2.0% rate. See id. at ¶¶ 253, 257, 261(c).
`
`The final three options stem from the same “indicator of value”—the Mylex-EMC license
`
`(value indicator #2b). Ex. 7 (Mylex-EMC license). Mylex and EMC were not gaming companies;
`
`they were enterprise storage companies (EMC was acquired by Dell in 2016, and Mylex was
`
`acquired by IBM in 1999). See Ex. 1 (Ugone Rpt.) ¶ 243. The Mylex-EMC license gave Mylex
`
`-4-
`
`

`

`Case 6:21-cv-00331-ADA Document 143 Filed 02/09/23 Page 10 of 38
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`the right to use 60+ EMC patents relating to Mylex’s data storage controllers and subsystems.1
`
`See, e.g., Ex. 2 (Ugone Dep. Tr.) at 139:25-140:3. The licensed products are data storage
`
`subsystems consisting of arrays of physical mass storage devices and “array controllers” that
`
`configure those subsystems and control the communication of data between them. See Ex. 7
`
`(Mylex-EMC License) at 19055. In exchange for the license, Mylex agreed to make a $2 million
`
`initial payment, to pay a running royalty of 3% on the first $133M of sales of controllers; and
`
`thereafter pay 1% of gross sales for using one patent or 1.5% of gross sales for the use of two or
`
`more patents from among the entire portfolio. See Ex. 1 (Ugone Rpt.) ¶ 244.
`
`Dr. Ugone concocted the three Mylex-EMC-based options in his matrix (Options 1, 2, and
`
`5) by considering three possible scenarios based on the parties’ relative bargaining power. In the
`
`first scenario (Option 1), Dr. Ugone assumed that Zynga’s negotiating position was strong enough
`
`to enable Zynga to negotiate away the initial 3% royalty on the first $133M of gross revenue. See
`
`id. at ¶ 261(a). In Dr. Ugone’s second scenario (Option 2), Zynga was still able to negotiate away
`
`the initial 3% royalty on the first $133M of gross revenue but, due to IGT’s purported negotiating
`
`strength, Zynga must pay an additional 0.5% in royalties for two or more patents. See id. at
`
`¶ 261(b). In the third scenario (Option 5), Dr. Ugone assumed that Zynga did not have enough
`
`negotiating strength to negotiate away the initial 3.0% royalty on the first $133M of gross revenue
`
`and must pay a 3.0% royalty for any one (or up to all four) of the Patents-in-Suit. See id. at
`
`¶ 261(e).
`
`1 According to Dr. Ugone, “[a] Licensed Controller is a licensed array controller that is ‘a single
`or multi-processor device or group of functionally inter-related devices operable to physically
`and/or logically configure a plurality of physical mass storage devices as one or more
`independently accessible arrays, and to control the communication of data between the array(s)
`and one or more Hosts or Clients in a predetermined format or formats,’” and “a licensed
`subsystem [ ] includes one or more array controllers.” Ex. 1 (Ugone Rpt.) ¶ 244 n.438.
`
`-5-
`
`

`

`Case 6:21-cv-00331-ADA Document 143 Filed 02/09/23 Page 11 of 38
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`These licenses and term sheets are summarized as follows:
`
`Summary of the Term Sheets and the Third-party Licenses
`
`Mylex-
`EMC
`License
`
`Licensed
`Products
`
`Patents
`licensed
`
`Non-patent
`subject matter
`
`Date
`
`Payment terms
`
`Controllers and
`Subsystems
`
`60+ EMC
`patents
`
` n/a
`
` 1998 Licensed
`Controllers
`
`Initial $2M
`payment
`
`3% of gross
`sales (for first
`$133M)
`
`1% of gross
`sales (1 patent)
`(after $133M)
`
`1.5% of gross
`sales (2+
`patents) (after
`$133M)
`
`Universal-
`InterTrust
`License
`
`Digital rights
`management
`software
`
` Unclear
`
` 1999
`
`InterTrust’s
`technology
`(including
`source and
`object code) and
`the ability to
`modify it
`
` 0.6%-2% of
`gross revenue on
`every transaction
`received via use
`of InterTrust’s
`technology (or a
`modified version
`thereof)
`
`-6-
`
`

`

`Case 6:21-cv-00331-ADA Document 143 Filed 02/09/23 Page 12 of 38
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`Dr. Ugone’s third “indicator of value”—that Zynga would pay more based on the number
`
`of patents infringed—is reflected in some options listed in his matrix, but not all. He provided no
`
`explanation for that discrepancy in his report.
`
`Finally, Dr. Ugone opined that the “market growth-related” option (2.5%) is the rate
`
`“dictated by the market environment at the time of the initial hypothetical negotiation” in 2012
`
`(value indicator #4). See Ex. 1 (Ugone Rpt.) ¶ 261(d). But Dr. Ugone does not explain why or
`
`how he determined that 2.5% was the market rate for a license to the Patents-in-Suit.
`
`After laying out the “royalty rate negotiation matrix,” Dr. Ugone listed several
`
`considerations that he believes would have been important to the hypothetical negotiation. See
`
`Ex. 2 (Ugone Dep. Tr.) at 301:10-14; Ex. 1 (Ugone Rpt.) ¶ 263. He then took that information and
`
`said, “Okay. I really think, given the dynamics and everything I have summarized in this section,
`
`that you would end up with a two-tier rate between 1 and 2 percent on the [lower end] and 3 percent
`
`as the upper end of, you know, the range.” Ex. 2 (Ugone Dep. Tr.) at 301:20-25. But he did not
`
`explain how he used the Georgia Pacific factors to choose Option 2 (Mylex-EMC [1.0% (one
`
`patent)/ 2.0% (more than one patent)]) and Option 5 (Mylex-EMC [3.0% (any number of patents)])
`
`over the other five options that he presented. See, e.g., Ex. 1 (Ugone Rpt.) ¶ 264(e). (These
`
`Options are highlighted in yellow above.) Instead, he raised the notion of the “aura in the room”—
`
`that is, the “forces or pressures … present at the hypothetical negotiation,” Ex. 2 (Ugone Dep. Tr.)
`
`at 278:6-17—and then factored that “aura” into his decision to settle on his royalty rate.
`
`Once he settled on a royalty rate, Dr. Ugone identified a royalty base to which his royalty
`
`rate would be multiplied to calculate his royalty estimate. He selected Zynga’s “worldwide
`
`reported bookings (less China) in the case of the ’189 Patent and ’089 Patent, U.S. reported
`
`-7-
`
`

`

`Case 6:21-cv-00331-ADA Document 143 Filed 02/09/23 Page 13 of 38
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`bookings2 in the case of the ’064 Patent, and U.S. in-app purchases in the case of the ’212 Patent”
`
`as his royalty bases.3 See Ex. 1 (Ugone Rpt.) ¶ 264(d); id. at ¶ 55 (Table 3). Dr. Ugone treated
`
`“reported bookings” as the equivalent of gross sales revenue. See id. at ¶ 270. Reported bookings
`
`include all income attributable to a product, namely (i) income from in-app purchases of virtual
`
`goods and (ii) income from advertising sales. Thus, for the ’189, ’089, and ’064 Patents, Dr.
`
`Ugone effectively included all of Zynga’s U.S. revenue (and worldwide revenue for the ’189 and
`
`’089 patents) from the accused Zynga games in his royalty base. And, for the ’212 Patent, he
`
`included all of Zynga’s U.S. revenue, other than a modest amount derived from advertising.
`
`Zynga conferred with IGT via phone, explained its basis for seeking to exclude Dr.
`
`Ugone’s testimony, and requested that IGT withdraw Dr. Ugone’s report, on February 1, 2023.
`
`See Mullins Decl. ¶ 2. IGT refused, leading Zynga to file this motion. See id.
`
`III.
`
`LEGAL STANDARD
`
`Trial judges must ensure that expert testimony is “not only relevant, but reliable.” Kumho
`
`Tire Co. v. Carmichael, 526 U.S. 137, 147 (1999). “The essential requirement for reliability under
`
`Daubert is that the ultimate reasonable royalty award must be based on the incremental value that
`
`the patented invention adds to the end product . . .[;] [i]n short, apportionment.” Commonwealth
`
`Sci. & Indus. Research Organisation v. Cisco Sys., Inc., 809 F.3d 1295, 1301 (Fed. Cir. 2015)
`
`(“CSIRO”). “The law requires patentees to apportion the royalty down to a reasonable estimate of
`
`the value of its claimed technology, or else establish that its patented technology drove demand
`
`for the entire product.” VirnetX, Inc. v. Cisco Sys., 767 F.3d 1308, 1329 (Fed. Cir. 2014). “[A]
`
`comparable license (or a comparable negotiation) may in some cases have ‘built-in
`
`2 In accounting, “bookings” track incoming dollars based on when the contractual right to the
`money is created, while “revenue” ties to when the money is received. As a result, bookings and
`revenue may be different in a given period, but are the same over the long term.
`3 Bookings from Zynga’s servers in China are not accused. Ex. 1 (Ugone Rpt.) ¶ 53 n.32.
`
`-8-
`
`

`

`Case 6:21-cv-00331-ADA Document 143 Filed 02/09/23 Page 14 of 38
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`apportionment.’” Omega Patents, LLC v. CalAmp Corp., 13 F.4th 1361, 1377 (Fed. Cir. 2021).
`
`But “[f]or built-in apportionment to apply the license must be ‘sufficiently comparable’ in that
`
`‘principles of apportionment were effectively baked into’ the purportedly comparable license.” Id.
`
`“The patentee has the burden of proving damages, and where licenses are at issue, that includes
`
`the burden to prove that the licenses were sufficiently comparable.” Id.
`
`Moreover, “there must be a basis in fact to associate the royalty rates used in prior licenses
`
`to the particular hypothetical negotiation at issue in the case” to survive Daubert scrutiny. See
`
`Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1317 (Fed. Cir. 2011). “When relying on
`
`allegedly comparable licenses, the proponent must account for differences in the technologies and
`
`economic circumstances of the contracting parties.” ADASA Inc. v. Avery Dennison Corp., 55
`
`F.4th 900, 915 (Fed. Cir. 2022) (citation omitted). “[A]lleging a loose or vague comparability
`
`between different technologies or licenses does not suffice.” LaserDynamics, Inc. v. Quanta
`
`Comput., Inc., 694 F.3d 51, 79 (Fed. Cir. 2012). And, “[w]hen performing a Georgia-Pacific
`
`analysis, damages experts must not only analyze the applicable factors, but also carefully tie those
`
`factors to the proposed royalty rate.” Exmark Mfg., Co. v. Briggs & Stratton Power Prods. Grp.,
`
`LLC, 879 F.3d 1332, 1350 (Fed. Cir. 2018).
`
`IV.
`
`THE COURT SHOULD EXCLUDE DR. UGONE’S DAMAGES TESTIMONY
`
`An “expert must [i] apportion damages and [ii] sufficiently tie the royalty rate to the facts
`
`of the case.” Exmark, 879 F.3d at 1351. Dr. Ugone failed on both counts.
`
`A.
`
`Dr. Ugone’s Opinion Is Unreliable Because His Unapportioned Damages
`Estimate Does Not Reflect The Value Of The Patents-In-Suit.
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`The Court should exclude Dr. Ugone’s opinion because he offered an unapportioned
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`damages estimate that fails to “reflect the value attributable to the infringing features of the
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`[accused Zynga games], and no more.” MLC Intell. Prop., LLC v. Micron Tech., Inc., 10 F.4th
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`-9-
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`Case 6:21-cv-00331-ADA Document 143 Filed 02/09/23 Page 15 of 38
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`1358, 1373 (Fed. Cir. 2021) (citation omitted).
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`Apportionment is required in this case because, as Dr. Ugone testified, the accused Zynga
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`games have multiple components, and “each of the accused games in this case contain[s] valuable
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`non-infringing features.” Ex. 2 (Ugone Dep. Tr.) at 210:22-24. Dr. Ugone’s report similarly
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`admits that “not all of the features of the Accused Zynga Products would be attributable to the
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`teachings of the Patents-in-Suit.” Ex. 1 (Ugone Rpt.) ¶ 161. That’s true, but a dramatic
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`understatement. Among other things, none of the patents purport to cover, e.g., the substance of
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`the accused games (their rules, graphics, and tie-ins to popular franchises like Harry Potter), the
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`availability of cooperative gameplay, or the desirability of the items offered for in-app purchase.
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`See generally Exs. 8-11 (Patents-in-Suit); see also Ex. 2 (Ugone Dep. Tr.) at 210:22-25 (agreeing
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`that each accused games “contain[s] valuable non-infringing features”).
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`Apportionment is also required because the entire market value rule does not apply.
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`LaserDynamics, 694 F.3d at 67 (“The entire market value rule is a narrow exception to this general
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`[apportionment] rule.”). Dr. Ugone does not contest this. Indeed, when asked whether he was
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`relying on the entire market value rule, he answered: “No, I’m not. And I think I was pretty clear
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`about that . . . .” Ex. 2 (Ugone Dep. Tr.) at 210:13-21. He also opined that “demand for the
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`Accused Zynga Products is driven [only] in part by the technology taught by the Patents-in-Suit,”
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`Ex. 1 (Ugone Rpt.) ¶ 39 (emphasis added), which falls far short of satisfying the “demanding”
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`entire market value rule, see Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 904
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`F.3d 965, 977 (Fed. Cir. 2018).
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`Because the entire market value rule does not apply, Dr. Ugone was required to apportion
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`damages through the royalty base, the royalty rate, or a combination thereof. Exmark, 879 F.3d at
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`1348. He did not. Instead he testified that he did not need to perform an express apportionment
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`Case 6:21-cv-00331-ADA Document 143 Filed 02/09/23 Page 16 of 38
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`analysis because apportionment is allegedly “baked into the rate and also at times baked into the
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`royalty base that is used.” Ex. 2 (Ugone Dep. Tr.) at 33:6-8. But that assertion is flatly wrong and
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`contradicted by the record. In particular, the royalty rates he selected between included (i)
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`portfolios licenses to
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`, (ii) a license to software products, and (iii) licenses in
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`completely different areas of technology. And the royalty base Dr. Ugone used, in all cases,
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`includes value attributable to non-infringing features of the accused Zynga games. Dr. Ugone
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`therefore failed to establish that built-in apportionment applies here, and did not make any other
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`attempt at apportionment. The Court should exclude his testimony. See Omega, 13 F.4th at 1377.
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`1.
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`Dr. Ugone did not apportion the royalty base.
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`Dr. Ugone used as his royalty base all revenue attributable to the Accused Products for
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`three Patents-in-Suit and all revenue attributable to a in game sales for the fourth Patent-in-Suit.
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`Specifically, his royalty base is (a) worldwide bookings (less China) in the case of the ’189 and
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`’089 Patents, (b) U.S. bookings for the ’064 Patent, and (c) U.S. in-app purchases in the case of
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`the ’212 Patent.” Ex. 1 (Ugone Rpt.) ¶ 264(d); see Ex. 12 (Ex. 13 to Ugone Rept.) at 5.4
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`Zynga’s accused products include many features beyond the asserted claims. As a result,
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`Dr. Ugone’s royalty base includes revenues derived from non-patented features. For example, Dr.
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`Ugone admitted that he “did not feel the need to apportion [the] royalty base for the ’089 patent.”
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`Ex. 2 (Ugone Dep. Tr.) at 33:20-22; see also id. at 33:23-34:3 (base for ’189 Patent was all
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`worldwide bookings); id. at 34:7-9 (base for ’064 Patent was all U.S. bookings).
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`Similarly, for the ’212 patent, while Dr. Ugone limited himself to the revenue from in-app
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`purchases, see id. at 37:4-13, he did not attempt to reduce that revenue to account for the non-
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`4 As “Zynga uses reported bookings as an equivalent of sales,” Ex. 1 (Ugone Rpt.) ¶ 207, Dr.
`Ugone’s opinion (and this motion) treat bookings and revenue equivalently. Reported bookings
`consist of gross sales revenue from virtual goods sold in Zynga’s online games (i.e., in-app
`purchases) and
` advertising revenue. See id. at 55 n.33.
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`Case 6:21-cv-00331-ADA Document 143 Filed 02/09/23 Page 17 of 38
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`infringing features of in-app purchases—e.g., revenue attributable to the desirability of the virtual
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`goods offered for sale in game. See, e.g., id. at 37:17-20 (Q: So for the ’212 patent, you did not
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`apply a royalty rate against only a percentage of U.S.-related in-app purchasing revenue, correct?
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`A: That’s correct.).5 That further step was required for apportionment. For example, in Finjan,
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`Inc. v. Blue Coat Systems, Inc., the Federal Circuit held that even reducing the royalty base based
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`on the extent to which customers used the infringing feature was not sufficient: “Because DRTR
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`[the infringing component] is itself a multi-component software engine that includes non-
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`infringing features, the percentage of web traffic handled by DRTR is not a proxy for the
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`incremental value of the patented technology to WebPulse as a whole. Further apportionment was
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`required to reflect the value of the patented technology compared to the value of the unpatented
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`elements.” 879 F.3d 1299, 1311 (Fed. Cir. 2018).
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`There is no dispute that Dr. Ugone failed to apportion his royalty bases such that they only
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`included the technological value of the Patents-in-Suit. For example, he did not conduct any
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`analysis of whether the patented inventions increase the amount of time users spend playing a
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`game, viewing ads, or making in-app purchases. To the extent Dr. Ugone adjusted the base at all,
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`it was only to eliminate categories of unaccused revenue like foreign sales or ad revenues. That
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`is not apportionment; it’s just identifying the accused revenue, which is a minimally necessary,
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`but not sufficient, step for satisfying the Federal Circuit’s apportionment mandate. See, e.g.,
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`5 Many unpatented features contribute to revenue Zynga generates from in-app purchasing. As
`such, Dr. Ugone’s failure to apportion results in revenue attributable to at least the following
`factors being improperly included in the royalty base: (i) the desirability of the Zynga’s games
`and the content that Zynga sells in connection with those games (which actually motivate the
`purchases), (ii) Zynga’s use of
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`; and (iii) Zynga’s use
`of AWS cloud services, such as load balancing features, to improve availability, responsiveness,
`and speed (and therefore, revenue) of in-app purchases. See, e.g., Ex. 13 (In-App Purchases
`Architecture Planning Document) at 2376; Ex. 14 (Sarabura Dep. Tr.) at 122:7-15.
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`Case 6:21-cv-00331-ADA Document 143 Filed 02/09/23 Page 18 of 38
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`VirnetX, 767 F.3d at 1327. But that’s all he did. And he made no effort to identify or exclude the
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`value associated with the unpatented features of the accused Zynga games from the base.
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`2.
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`Dr. Ugone failed to apportion the royalty rate.
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`Because Dr. Ugone did not apportion the royalty base to exclude the value of non-
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`infringing features, apportionment through the royalty rate was required. Exmark, 879 F.3d at
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`1348 (“apportionment can be addressed . . . by adjustment of the royalty rate so as to discount the
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`value of a product’s non-patented features”). Rate apportionment can be achieved in different
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`ways including through the proper application of the Geor